When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Littelfuse, Inc. (NASDAQ:LFUS) has fallen short of that second goal, with a share price rise of 30% over five years, which is below the market return. Zooming in, the stock is actually down 9.1% in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Littelfuse achieved compound earnings per share (EPS) growth of 9.5% per year. This EPS growth is higher than the 5% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Littelfuse's key metrics by checking this interactive graph of Littelfuse's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Littelfuse's TSR for the last 5 years was 36%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 23% in the last year, Littelfuse shareholders lost 8.2% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Littelfuse better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Littelfuse you should be aware of.
Of course Littelfuse may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.